Tuesday, 27 April 2010

Looking after the pennies......

With nine days to go before polling, the Institute of Fiscal Studies pronounced that not one of the three main parties seeking our votes was being sufficiently explicit about how they would tackle the black hole in public finances. The introductory remarks by Robert Chote are backed up by a wealth of analysis from other IFS speakers. But the overall point is the same: the gap in Britain's public finances is matched only by the gap in credibility displayed by the major parties in how they would cut the deficit.
Political parties do not tend to write manifestos that are too honest about what they would do if elected to office. Labour learned their lesson well and truly in 1992 when the late John Smith's Shadow budget proposals were rather too open about what would happen if John Major's Government were not re-elected.
So we now have obfuscation, evasion and less than transparent answers to awkward questions. The Labour Government should have had a spending review in advance of the election. They haven't because presumably the outcome would have been a sure-fire vote loser. Whoever takes over now will need to move pretty swiftly to fix budgets for the three year period from 2011/12 or the uncertainty around public finance will only increase. Whilst Labour are culpable neither the Tories nor the Liberal Democrats have offered us any real clues as to what they would do. No-one can object to more efficiency (Tories), or bearing down on tax cheats (LibDems), so that's where, we are told, the savings will be found. How is trust to be restored to political life if our leaders or would-be leaders cannot be honest about the difficult decisions they intend to take?
The latest slew of opinion polls suggest that maybe David Cameron is recovering some of the ground lost when the Nick Clegg bandwagon began to roll after the first televised leaders' debate. At 36% the Tories have a solid led over both Lib Dems (29%) and Labour (28%). But even at that level this is hardly a bandwagon, let alone a would-be landslide.
We are told that coalition government or hung parliaments make for weak and indecisive administrations. But how democratic is it that a party with barely one third of those voting (and probably less than a quarter of those eligible to vote) can be said to have a clear mandate. If the Lib Dems surge says anything it is perhaps that more representative Government comes from more than one party having a say in running the country. And after the expenses scandal perhaps it is better to have two-party government so that one lot can keep an eye on the other...........

Monday, 19 April 2010

Liberal with your money

Last week I had a look at the Conservative party proposal to fund £12bn of savings through a new Efficiency drive in the public sector. I concluded then the plans were unlikely to generate a fraction of the sums quoted. In part this was because they were covering ground that was already the focus of efforts to generate savings and in part because some of the proposals were based on full year projections when an incoming Government starting in May would not have a full year to start with.

So if I am sceptical about the Conservative's plans the Liberal Democrats financial proposals appear eye-wateringly fantastic. £17bn tax redistribution alongside a spend and save package aimed at generating a net £10bn a year after 2010/11. I am not a great expert on the fiscal arithmetic but the critique of the Lib Democrats tax proposals here is fairly balanced. It has been costed and independent observers generally believe the figures quoted are reasonable. What it fails to observe is that the projected savings may be eroded by the tax avoidance industry. Certainly the £5bn targeted from anti-avoidance measures strike me as a triumph of hope over experience. I also cannot believe that those home owners sitting on a £2m+ pile will not sit by and let the state take a 1% levy. Finally hitting the airline industry with a per plane duty may not be viable in the wake of the current disruption to services - huge losses are currently being suffered by carriers. So overall a creditable effort but not one that quite does it for me. Either those ambitions of a £10,000 threshold will need to be phased in or like all the other parties there will have to be an increase in either the scope or basic rate of VAT.

So on to the spend and save package. Here I think they have done a good job. The savings proposals for the most part in quite specific areas. Whilst many will welcome the end of the ID card scheme and biometric passports, they may feel less comfortable about the proposals on Trident and the reform of winter fuel payments. There are weak spots in these proposals. A lot rides on our old friend Whitehall waste. The Lib Dems also appear to dislike Quangos so much they are going to abolish them twice (once in Education and once everywhere else). These proposals may not withstand scrutiny once they see the light of day but I doubt whether any party does not have a bonfire of the Quangos in its sights. And we do at least we know what a Lib Dem Government would do to save money. And no-one - even the Labour and Conservatives who must now consider how to deal with resurgent support for the Lib Dems - can argue that the proposals lack transparency.

My challenge to the two main parties would be for equal transparency. Do I think we'll get it? If they want to recover lost ground I think they must. The two party cartel is having to deal with a challenge to its inalienable right to take it in turns to run the country. They should stop trying to tell us what they think we want to hear and tell us instead what we need to know.

Friday, 9 April 2010

Work in Progress

My very low expectations for this election campaign are not being disappointed. Yesterday the newspapers carried a story about how the Conservatives planned to finance their policy of reversing Labour's planned increase in National Insurance contributions - the tax on jobs you will recall. The Conservatives acknowledge that the NI policy - at a cost of £6bn - will need to be funded. Interestingly they have indicated that they have plans to raise £12bn with half paying for NI, the remainder to go back to the public sector.

The source of this funding - discussed in the FT by none other than that public sector efficiency guru Sir Peter Gershon - would be as a result of driving out further efficiency savings in the public sector. All very laudable except that the targets for driving out £12bn in a year seem for the most part very familiar - back office reform, better procurement, freezing IT projects and bearing down on consultants. I would be amazed if this shopping list was not already the focal point for many public sector organisations as they look to deliver on existing efficiency targets. For that reason I believe that most of the £12bn is accounted for in existing targets and plans - in short there is a huge amount of double counting here. Many public sector operations are already struggling to realise bottom line savings as a result of these initiatives (many of which have been worked on since "efficiency" and Vfm resurfaced in 2004) and so to believe that there will be a step change in improved delivery immediately after the election is hard to swallow - hence the leading cartoon. And even if there is a vast swathe of public sector organisations not yet 'doing' efficiency, many of the proposals here cannot be done either quickly or without a cost - and zero cost is implicit in the Conservative Party figures.

However that is not to dismiss the whole exercise as fanciful. The plans to freeze recruitment and allow savings to be generated as a result of not filling vacancies ought to meet the objective of generating savings in 2010/11 and at no cost. So this morning, with my trusty fag packet to hand, I did some quick figure-work.

The assertion I have seen is that turnover rates in the public sector is 8%. Lets assume that the 8% represents a net exodus from the public sector (questionable but still) and lets assume an average salary of £25000 or just over £2000 a month). The ONS statistics on the public sector indicate there are a staggering 6.1m employees. If 8% are leaving annually that is nearly 1/2m a year or more pertinently, 40,000 a month. So each month the public sector could find itself able to save £84m (40,000 leaving multiplied by £2000+ per month) simply by not replacing the people that leave. Now as we go month by month through 2010/11 the accumulation of savings is impressive. For example in the first month of 2010/11 (April) we save £84m; in May we save £168 - the £84m from the people who left in April plus a further £84m from the May departures. By my estimates that is worth £6.6bn by March. Impressive and certainly sufficient to pay for the NI policy.

But: recall that the savings have to be generated in 2010/11 at no cost. We're already into 2010/11 and there will be a flow of appointments already in train which are probably irreversible. So I have written off the first three months. No matter because by my estimates there are still potential savings of £3.8bn to be had even if the policy only starts to bite after three months. If we also assume that the promise to afford a degree of protection to front-line services would mean that only half the departures would not be replaced we could see a saving of £1.9bn being generated - in line with Conservative thinking here.

Just one small snag - the number of post losses to generate this saving in 2010/11 has been quoted as 40000. By my reckoning its rather more than that. Partly because the machinery to ensure an effective freeze could probably only operate for nine months in the year of the election; and partly because, on the assumption that this is being done by natural wastage, savings will be built over the year as people leave and not from Day 1.

By my reckoning the post losses that would need to be found to fund plans in 2010/11 are 182,000. It is only once we have a recruitment freeze running across the whole year that savings will start approaching target levels. My own estimate is that on the basis of an average public sector salary of £25000, one would need to lose 80000 jobs to save £2bn in a full year. That a bit less scary than the 182,000 required for 2010/11 but still more a good deal more than 40,000.

And bear in mind, thats the most do-able bit of the £12bn we have been told can be saved through efficiency. In short the whole thing is fantasy politics. Lets hope the rest of this campaign can be conducted on the basis that the British people are not idiots.

Wednesday, 7 April 2010

Weighing up the Pro's and Con's

....and we're off. Four weeks or more when our political leaders will be alternately meeting the real people in whom they are now taking an uncharacteristic interest; or rallying the faithful at set piece "meetings". And whatever it is they are doing, ensuring that the mass media are watching. The public meanwhile will be trying to assess which party is promising the best hand-outs or at least is offering a commitment not to touch the things that matter to them. On such things will the latest 5-year contract be drawn up between the people and the party fortunate enough to win enough seats to form a government.

The ideas such as they are seem to revolve around "change", "fairness" and - serious expression - "tough choices" (is there any other type of choice?) over taxes and public spending. I will listen to the debates and then I will vote. At this stage (unusually for a life-long centre/leftie) I have a really open mind. I am attracted to some of the Big Society rhetoric of David Cameron and so am really prepared to give the Conservatives my vote. However they have this habit of blowing their credibility with silly stunts like the promise not to reverse the impending National Insurance increases. That's £7bn that will need to be found elsewhere - not a trivial exercise. Labour are the devil we know but they look tired and I am not sure they have the stamina to govern for another five years or to start dismantling the bloated bureaucracy that they have spent 12 years building. The Lib Dems meanwhile have a real asset in Vince Cable but unlike Lionel Messi at the Nou Camp last night I don't think he can win this one on his own.

The best contribution to the debate that I have seen to date have been Choosing the Common Good published last month by the Catholic Bishops of England and Wales. On a similar theme a new book, 'Red Tory' by Philip Blond, (read about but not read yet) appears to express similar sentiments, arguing that our broken society needs to be repaired by more communitarian solutions rather than, on the one hand, the promotion of unbridled free markets associated with the Tories, or the state sponsored solutions that are Labour's stock in trade. Armed with these two, my choice will be for the party which is at once brave enough to deal honestly about our options for public spending and taxes before being elected and then has the courage to set about rebuilding a country in which people take greater responsibility for contributing to the communities in which they live and the people that live there.